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Insurers use their own scoring system, along with other factors, to determine your rates
Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.
Ask Steve a question, or see if your question has already been answered in the Keeping Score answer archive.
My car insurance went up because of my credit. Can I challenge it?
The scoring used cannot be challenged, but the data used to develop the score can. Get a copy of the credit report used in the underwriting process. Your insurer can tell you which one it was.
You can get a free copy of your credit report annually at AnnualCreditReport.com. Check it for errors or out-of-date items and dispute anything that looks wrong. You can also get a more detailed look at your situation by ordering a free C.L.U.E. insurance report at LexisNexis or checking your credit-based insurance score.
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Dear Keeping Score,
In 2018 I accepted an offer from Dell to pay off a new computer over 12 months. Also in 2018, I accepted a rebate offer from Penney’s for new shades that were paid off in full in 2018. All savings on the two new cards were lost when my car insurance renewal was increased by $400 for low credit scores based on their scoring that could not be challenged. Equifax and Experian scores were over 800. Any way around gaining from one offer and losing on insurance? -Raya
First, I have some practical suggestions for you and then I have an explanation of what’s going on behind the scenes that may help you going forward.
The scoring used cannot be challenged, but the data used to develop the score can. Get a copy of the credit report used in the underwriting process. Your insurer can tell you which one it was. Because your rate increased in part because of information in your credit report, the report should be free.
You can also get a free copy annually at AnnualCreditReport.com. Check it for errors or out-of-date items and dispute anything that looks wrong.
You can get a more detailed look at your situation by ordering a free C.L.U.E. insurance report at LexisNexis. C.L.U.E. Auto is a claim history information exchange containing up to seven years of personal automobile claims matching the search criteria submitted by the inquiring insurance company. More than 99 percent of insurers writing automobile coverage provide claims data to the C.L.U.E Auto database.
See related: Less-than-stellar credit can drive up your car insurance rate
For a small fee you can get a copy of your insurance score as well. Insurance scores developed by FICO – such as FICO Auto 8 – range from 250 to 900. The higher the score, the better. Look for inaccuracies when you get the data. You can dispute errors just like for your credit report.
Next, if anyone else living in your household has had a credit problem or a glitch on their driving record, they may be affecting your rates. Insurers can order reports and scores of other people living at the same address, even if they aren’t listed on the policy.
Lastly, if you think you’ve been unfairly treated, complain to your state insurance commissioner or regulator. Send a copy to your insurer’s president. This will almost certainly get you another review.
More on how insurance companies score you
Now, here’s some background info. Many industries maintain their own financial databases that are often used in conjunction with credit reports for pricing and other decisions. My book “Credit Repair Kit For Dummies” details 46 of these national specialty reporting bureaus along with your rights and remedies for each.
Insurance companies have their own scoring system, which you have now discovered as well. Called a credit-based insurance score, these scores were introduced in the early 1990s, according to the National Association of Insurance Commissioners. These scores use some of the information found in credit report files, in addition to other information like your claims history, driving record and type of car to predict the risk of a consumer to file an insurance claim.
It seems that the way a consumer uses credit is a good indicator of that likelihood. Those consumers with good credit reports generally do not file as many insurance claims or get into as many accidents. How likely you are to file claims are what is most important to your insurer. Your credit report is just a piece of the puzzle when it comes to insurance rates.
It also seems from your question that you did challenge the insurance company about the decision but were unable to change their mind. That is unfortunate, but one thing to remember is that you are the customer and you absolutely have the right to move your insurance coverage at any time. But be sure your financial ducks are all in a row if you decide to go that route.
So, now what? The same steps for improving your regular credit score will help to improve your credit-based insurance score. Pay your bills on time, every time. Don’t max out your credit cards. Keep older cards and accounts, even if you don’t use them much, to extend your history.
Be careful when opening new accounts. For example, if you are planning on a furniture purchase you might consider helping your credit mix with an installment loan as opposed to another credit card account. Doing these things will be best for your scores, as well as your overall financial health.
Remember to keep track of your score!